Should you turn your home into an investment property?

Should you turn your home into an investment property?

For what reasons are you leaving your family home?  You purchased your home because it was where you wanted to be at a certain time in your life. It suited your circumstances. It was great for the family…  But all of a sudden you have had to relocate, perhaps due to work or change of family situation, and you are moving on.

Now it’s understandable for you to think that your home could become an investment property, perhaps an addition to your existing investment portfolio or a good way to start one. Well, I’m urging you to think again.  My very strong view is that if you are never planning on return to your home, sell the property and move on.

I can hear you saying ‘But why Hank? We love this property so why wouldn’t it make sense to simply hold on to it and collect the rent’

So let me put it this way. You purchased the property specifically for your own use, and that is not the basis for choosing an investment property. In simple terms let’s say you purchased the house for $400,000 in Sandy Bay or Lindisfarne or Kingston and you lived in it for a number of years. It has served its purpose very well. Now you are moving out and never coming back.

Why keep it? I will ask you this question.  If you had $400,000 cash to purchase an investment property would it be this property? Time and time again the answer is a categorical ‘no’! Your emotional attachment to the house is clouding your judgment on making a sound investment decision. The return will never be as good as that on a specifically designated investment property.

I can give you numerous examples of this! Here are just two: A property in West Moonah – a much-loved family home where there was a really strong emotional attachment for all the family. The decision was made to keep it and rent it as the owners were moving to Queensland. Wrong decision! The property deteriorated so badly that it was finally sold anyway, causing much heartache along the way. It should have been sold when it was in peak condition, loved and cared for.

I had owners who sold a similar property in Howrah for $550,000 as they were moving to Melbourne and never returning. The Howrah property was returning a modest rental and slow capital growth.  They sold it and bought a house in a fast capital growth area in Victoria. Correct decision!

The other aspect is the taxation component and in this regard, it is imperative that you seek advice as to the tax implications of retaining your family home as an investment property. Again, my strong advice to you is, do not retain a property purchased for your own specific use. It will prove to be the wrong choice for a long-term investment property. Never confuse emotional attachment with an important business decision – it could be very costly in the long term.